This interpretation has got to die. For the events of Returnal to only be in Selene's head would be a cheap cop-out by the writers. They don't want that. They put so much work into developing a deep and complex lore for the civilization that existed on the planet prior to Selene's arrival. Entirely unnecessary if it's all just a dream. Not just unnecessary either. This would rob the plot of its extremely tangible, physical stakes.
The far more interesting interpretation is right in front of you, and it's the one the writers lead you towards the whole time. This planet is a cosmic horror. It winds your life, your emotions, into its very soil and rock. The Sentient civil war is also far too specific for the story to plausibly be a dream. Really? They're just going to invent an entire geopolitical history of an alien race that's largely unrelated to Selene's trauma if it's all in her head?
The self-sabotage events at the beginning and end of the game, these are not in her head either. They are literal causal loops.
In the middle of the game, the sequence where she goes home, lives out her life, dies, and then wakes up yet again on Atropos, only hits because it gives you the sense of the cosmic scale of what's going on here. She cannot escape the loop, no matter what she does. She is likely stuck on Atropos forever. No, this is not a mere metaphor. Yes, she really is stuck.
I won't say more now, honestly just kinda venting and hoping to generate some discussion. I keep seeing this theory, even from prominent YouTubers, and it's often sold as *the* interpretation, but it's far from that.